From: rbernard@nyse.com [mailto:rbernard@nyse.com]
Sent: Tuesday, February 11, 2003 9:45 AM
To: Harris, Lawrence E.
Cc: atkinsp@SEC.GOV; camposr@SEC.GOV; glassmanc@SEC.GOV;
goldschmidh@SEC.GOV; pitth@SEC.GOV; ameels@SEC.GOV; delatorrel@SEC.GOV;
headm@SEC.GOV; sternb@SEC.GOV; traegerh@SEC.GOV; nazaretha@SEC.GOV;
ColbyR@SEC.GOV; adkinsA@SEC.GOV; williamsst@SEC.GOV; preziosog@SEC.GOV;
rbritz@nyse.com; ABlocker@nyse.com; hday@nyse.com;
Ron__Jordan/MDS/NYSE@NYSECORPRobert_G._Britz/Corp/NYSE;
pbennett@nyse.com; jcochrane@nyse.com
Subject: Branding NYSE Liquidity QuoteSM: Network Externalities and
Market Power
Damn. A whole graduate economics course in eight lines! I'm glad you are
on the government dole and cannot bill me. Thanks for connecting the dots.
Since years of toiling in the antitrust vineyards cause Harvey Goldschmid
to thing about these issues in much the same way that you do, you'll be
interested in our interchange with him about "network externalities" (not
that he used those two words). Bob Britz took Harvey through the Bloomberg
slides so that he could see how unintrusive our requirement for Liquidity
Quote's independent display turns out to be once a vendor works with
windows, lines, colors and other design techniques to optimize the dual
goals of utility and distinguishing Liquidity Quote.
At the end of our meeting, when Bob asked Harvey to articulate what was
really at the bottom of the staff concerns, Harvey also replied with two
words: "market power". I responded by extending my little finger and
perform a finger curl (to be contrasted with an arm curl), saying in
effect, "If requiring our distributors to expend a little ingenuity to
display our firm, executable "where's the beef" quotes independently from
the fleeting, out-of-the-money, 100-share "best" autoquotes is an exercise
in market power, it's an awfully modest one."
Rich Bernard
NYSE
212 656 2222

"Harris,
Lawrence E." To: "'rbernard@nyse.com'"
<HARRISL@SEC.GO cc:
V> Subject: RE: Branding NYSE Liquidity QuoteSM: One Thin Line
02/11/03 08:10
AM
Rich,
You give me more credit than I deserve.
A network externality exists when the value of your business to your
clients
increases with the number of clients that you have. Telephone service, all
forms of brokering including social matchmaking, Internet chat service, are
other examples of industries that have network externalities. Free market
competition in such industries often results in a single or dominant large
provider. The biggest economic problems in such industries appear where
the
networks interface with each other. Regulating access and pricing
interfaces is difficult.
- Larry

From: rbernard@nyse.com [mailto:rbernard@nyse.com]
Sent: Tuesday, February 11, 2003 7:52 AM
To: Harris, Lawrence E.
Cc: rbritz@nyse.com; pbennett@nyse.com; jcochrane@nyse.com
Subject: Branding NYSE Liquidity QuoteSM: One Thin Line
You were doing such a good job of tracking down unintended consequences
yesterday that I never got the chance to ask you to explain your statement.
I think I know what a "network externality" is, but in this context it's
"inside baseball" to me and I cannot connect the dots. Can you help me
out?
Thanks.
Rich Bernard
NYSE
212 656 2222